Eoghan Murphy (Dublin Bay South, Fine Gael)
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I move: "That the Bill be now read a Second Time."

As this is the first time I am moving legislation on behalf of the Minister for Finance, I would like to say that I look forward to working with all Deputies in the House, both on this legislation and on further matters as they arise over the period of the Government.

I am pleased to present the Single Resolution Board (Loan Facility Agreement) Bill 2016 to the House. At the outset, it should be noted that the Bill is very much of a technical nature and is designed primarily to address an international obligation arising from the banking union agenda. The basis for the Bill is the requirement to put in place bridge financing arrangements to the Single Resolution Fund. This was triggered by the statement of 18 December 2013 adopted by Eurogroup and ECOFIN Ministers on the funding of the single resolution board. It required, especially in the early years, that member states participating in the Single Resolution Mechanism should put in place a system by which bridge financing would be available as a last resort and in full compliance with state aid rules. It was also stated that such arrangements should be in place by the time the Single Resolution Fund becomes operational.

The Single Resolution Fund is the financing element of the Single Resolution Mechanism, which is designed to provide, within a banking union context, a centralised resolution system which will be applied in a uniform fashion across all participating member states. The Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism faced serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and the real economy through the application of resolution tools such as bail-in and the use of a Single Resolution Fund, which is financed by the banking sector.

The target level for the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all of the participating member states, which is to be reached at the end of eight years. This is estimated to be in the region of €55 billion. During the transition period to full mutualisation, the fund will operate through national compartments into which member states will transfer the contributions collected from their banking sectors.

In practice what this means is that should a bank be put into resolution and the bail-in, which involves the write down of a minimum of 8% of the bank's equity, capital instruments and eligible liabilities, proves insufficient to cover the losses, the next step will be the provision of funding from the national compartment of the affected member state. If there are still losses to be absorbed after this step, funds are then obtained from the mutualised elements of other national compartments. There is also the option for the single resolution board to borrow from the market to cover losses, but depending on the scale and circumstances, this may not always be possible. As a result, the single resolution board may find itself in a situation, particularly in the early years, where after the bail-in process has been completed and the resolution waterfall process has been exhausted, there are still losses to be absorbed. In such a situation, it will require an alternative source of financing and it has been agreed by the Council of EU Finance Ministers that this should take the form of national credit lines.

Most member states have either already put this in place or are about to do so, as there was a commitment following European Finance Ministers' agreement on the approach last December that this needed to be in place by 1 January 2016. It is crucial we progress the Bill as quickly as possible in order for Ireland to meet its banking union obligations.

The consequence of not signing the loan agreement with the single resolution board is that should an Irish bank get into financial trouble before the enactment of the legislation, then the funding available to the Single Resolution Fund will come from the small amount in the Irish national compartment, in the region of €70 million transferred from the national resolution fund for 2015, and the mutualised elements of the other national compartments, also only a very small amount, and any borrowing that the single resolution board can carry out. However, if this should prove insufficient, then there will be no fall-back source of financing from the single resolution board as the national credit line will not be in place.

It is important to point out that our banks are currently well capitalised and in general good health. Therefore, I believe the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national backstop to the single resolution board is key from a confidence perspective as it provides another indication to the market that the banking union member states are serious about ensuring stability in their banking sector.

I want to provide Members with a short introduction to the loan facility agreement between the State and the single resolution board. The loan facility agreement is an individual agreement between each participating member state and the single resolution board in relation to the credit line that it commits to provide to it where the need for bridge financing arises. The terms and conditions of each agreement are broadly speaking identical aside from the amount to be requested from each member state.

The loan facility agreement provides that the maximum aggregate amount to be provided by all member states is €55 billion. To determine the share of each participating member state, it was agreed to use the relative size of each member state's compartment in the Single Resolution Fund using the estimate of the European Commission as of 27 November 2014. This constitutes the allocation key between participating member states for determining the respective credit lines. In this regard it should be noted that Ireland's key is 3.3% of the €55 billion, which equals €1.815 billion.

During the negotiation of the loan facility agreement, two issues emerged: whether it should be possible to pay a credit line in tranches rather than all at once, and whether national approval was required to pay a credit line to the single resolution board. If member states were willing to forgo flexibility on these two points, the board would pay an annual fee of 0.1% of their credit line. In the case of Ireland this fee, known as a commitment fee, would equal €1.8 million per annum. The Minister for Finance consulted the NTMA on this point. It advised that the flexibility whereby the State can pay the loan in tranches over a 19-day period, except in exceptional circumstances, is worth forgoing the commitment fee. In addition, the credit line will also require national approval which will ensure there is appropriate national oversight.

An amendment will be introduced on Committee Stage providing for an additional Part to the Bill. The Department of Finance is currently transposing the recent European market abuse regulations and market abuse directive into Irish law. On legal advice, the Minister, Deputy Noonan, will bring an amendment to the Companies Act 2014, by way of the Bill, to refer explicitly to the new European market abuse regime in section 1365 of that Act. This will ensure the continuation of the existing offences and high-level penalties of up to €10 million in fines, or up to ten years' imprisonment on indictment, or both, for insider trading and market manipulation.

I will now go into more detail about the main provisions of the Bill. The Bill is short, consisting of eight sections, and captures the key points of the loan facility agreement between the State and the single resolution board. Section 2 provides that the Minister for Finance can perform any functions necessary for the purposes of the State's performing its functions under the loan facility agreement. Section 3 provides the legal basis for the payment of money from the Exchequer to the single resolution board. Section 4 sets out the circumstances in which the Exchequer may make a payment of money to the single resolution board. Section 5 sets out the legal basis for facilitating a payment by the single resolution board to the State. Section 6 requires the Minister for Finance to provide an annual report to the Dáil with information on the value of any loans and repayments made. Section 7 enables any expenses incurred by the Minister for Finance to be covered by moneys provided by the Houses of the Oireachtas.

I will now outline the main paragraphs of the terms of the loan facility agreement, which is the Schedule to the Bill. Paragraphs 2 and 3 state the maximum amount of the loan, €1.815 billion, and the purpose for which the loan may be used. Paragraphs 4 and 5 set out how the single resolution board must apply for the loan, the details of the loan, the timeframe for the lender to respond and the making of the loan. Paragraph 6 sets out the conditions around repayment of the loan, and states that in circumstances in which not enough ex post contributions have been made to repay the loan in two years, the loan can be extended by one year. Paragraph 7 sets the out the conditions on the prepayment of a loan. Paragraph 8 sets the conditions for the setting of the interest rate on the loan. Paragraph 9 states that no commitment fee shall be payable by the single resolution board to the State.

The Minister for Finance chose to forgo a commitment fee of 0.1%, or €1.8 million per annum, in return for greater flexibility after consultation with the NTMA. In return for the forgoing of the commitment fee, the credit line will require national approval rather than being automatic. Another benefit is that the State can pay the loan amount in tranches over a 19-day period, barring in exceptional circumstances where the single resolution board needs to avert the immediate default of an entity under resolution and would require more than 50% of the loan facility agreement.

Paragraph 11 describes the information sharing requirements and sets out that the State should inform the single resolution board if any event occurs that may prevent it from fulfilling its obligations under this agreement. It also allows the State, the single resolution board, the European Commission and the European Stability Mechanism to exchange information relevant to this agreement where the State has requested or received stability support. Paragraph 12 contains a provision that national approval must be sought by the State within three days of a pre-notification request from the single resolution board, and outlines a number of procedural items in relation to the operation of the agreement. Paragraphs 14 to 18 set out various technical provisions such as payment mechanics, confidentiality agreements, interest calculations and disclosure requirements. Paragraph 19 sets out how the State may pledge security to the European Stability Mechanism in the event that the State enters stability support.

In conclusion, I would like again to emphasise the importance of the early passage of this Bill to enable the implementation of significant parts of the EU banking union legislative agenda. It will also ensure that Ireland meets its banking union obligations as agreed with other Member States involved in banking union. In addition, the Committee Stage amendment to the Companies Act will ensure that Ireland maintains a robust regime against market abuse, with high levels of penalties, both in fines and in custodial terms. I commend the Bill to the Dáil.

Michael McGrath (Cork South Central, Fianna Fail)
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I will be sharing speaking time with Deputies Seán Haughey and Frank O'Rourke, if that is agreeable to the Ceann Comhairle.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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Agreed.

Michael McGrath (Cork South Central, Fianna Fail)
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I congratulate the Minister of State with responsibility for financial services and e-government, Deputy Eoghan Murphy, on his appointment. I congratulated him personally but I also wish to do so across the floor of the House. I got to know the Minister of State quite well when he was a member of the banking inquiry, and I am sure we will have a good working relationship across the floor of the House. I wish him all the best in his new role, which is a very exciting opportunity for him.

Fianna Fáil will be supporting the Single Resolution Board (Loan Facility Agreement) Bill 2016 in the Oireachtas. We do so as it is primarily technical legislation to facilitate the process of banking union, which is already well in train. The concept of a Single Resolution Mechanism and the associated Single Resolution Fund brings about a sea change in how banks will be supervised and regulated in Europe. Never again should a situation arise in which the authorities in an individual state are forced by the European Central Bank to use taxpayers’ money to prop up the banking sector in that country without assistance from fellow member states. An entirely new process is now in place which would mean that, in the event of a banking collapse, there will be a clear cascade of interventions. Equity holders would be first to lose out, followed by subordinated bondholders, various categories of senior bondholder, corporate depositors and, finally, uninsured deposits. In theory, the resolution fund only kicks in after all stages have been gone through.

The consequence of the new resolution arrangements is that investors and depositors are considerably more at risk than they were previously. Indeed, the outline structure was tested during the Cypriot banking crisis of 2013 when uninsured depositors lost out to the tune of 48% in the case of one bank, the Bank of Cyprus. This is something that needs to be considered carefully by individuals and institutions when deciding where to put their money. It is imperative that the system of regulation be sufficiently robust to identify weak banks and require them to take remedial action when potential warning signs are identified. This is particularly the case in respect of banks that operate across national borders.

Later this evening we will be debating the subject of motor insurance. One startling event in recent years was the sudden collapse of Setanta Insurance. It was operating in the Irish market but was regulated out of Malta for prudential purposes. Clearly this regulatory model failed as, over two years later, customers of the bank are still left waiting for claims to be settled. The question must be asked: is the system of banking regulation sufficiently strong in each country in the EU to prevent another Setanta-like situation arising? While the largest banks across the EU are subject to centralised supervision by the ECB, this function is essentially subcontracted to national central banks in the case of smaller financial institutions. It is highly likely that some depositors with amounts greater than €100,000 are not aware that some of their savings may be at risk in the event of a future banking collapse. It is important that people be aware of that risk and that they also be aware of the steps that are being taken and are in place to prevent such an occurrence.

The European banking system has not been cleaned up. There are plenty of weak lenders across the Continent. The biggest difference now is that, in contrast to 2010, inflation is at negligible levels. The European Central Bank has missed its inflation target for four years and is very likely to miss it for some years to come. This means that the banking system cannot rely on inflating away its problems. While a sticking plaster has been applied by the ECB to the banking sector in the form of wave after wave of cheap money, a number of European banks remain in a fundamentally weak position. The best mechanism to improve the health of the banks in the medium term is to improve the health of the economy in which they operate. In Ireland’s case, renewed economic growth has underpinned the position of the banks. A number of banks have released reserves as previous provisions in respect of bad debts now appear to have been overly pessimistic. However, the same cannot be said for other European states. Italy, Belgium and Spain all continue to have issues in their banking sector. This is inextricably linked to the weakness of the overall European economy.

While Mario Draghi has been creative in terms of the monetary policy actions he has taken, the response of the European Commission in relation to fiscal policy has been woefully lacking. Despite what the populists and anti-Europeans say, Europe itself is not the core problem. However, the European Commission is not playing anywhere near the role it should in providing solutions. The EU budget is limited because of the demands of anti-EU parties, so its ability to transfer money to hard-hit regions is contracting rather than expanding with need. It is also failing to push countries that have the opportunity to spend more to stimulate the economy. Should our neighbours in the UK vote later this month to leave the EU, there will be an immediate economic crisis and Ireland will be in the eye of the storm. There are few, if any, monetary policy levers left to stave off a Europe-wide slump. A sustained fiscal response is needed to stimulate the European economy. In simple terms, this would mean Germany spending a bit more and paying themselves a bit more, which would have a positive spillover effect on all countries in the EU and would certainly stabilise the volatile political situation across the Union.

This month marks the fourth anniversary of the so-called game-changer deal on bank debt. It might be worth recalling a few things that were said at the time. The Taoiseach told us:

To those the naysayers who say you should be beating the Lambeg drum up and down the streets of Europe, there is another way of getting results and that's what interests me. I'm a hard grafter and, as some of them found out, they shouldn't tangle with me too often.

Indeed, the Minister for Finance told the Financial Times:

Our negotiating position up to now was to put arrangements in place to lessen the burden of bank debts, but it would still remain on the sovereign balance sheet. This agreement takes this further in terms of policy and the intention now is to separate certain bank debt completely from the sovereign balance sheet.

It is not acceptable that the Government has all but given up on securing the implementation of the June 2012 EU summit agreement.

That summit agreement was interpreted by the Government as a game-changer which would deliver a bank-debt deal for Ireland. No such deal has been secured in the intervening period.

The early repayment of the IMF loans and changes to the terms of the EFSF and EFSM loans was fully supported by Fianna Fáil but it is entirely separate to, and certainly not a substitute for, a deal on legacy bank debt. Having failed to deliver a deal on bank debt, the Government switched to suggesting the sale of AIB shares as a better alternative. This is completely contrary to what the Government has been saying all along, when a bank debt deal was the main objective.

As I have said before, if the European Heads of State are to be true to their word, they would facilitate a retrospective recapitalisation of the banks. It would be an acknowledgement that Ireland has not just a practical case for relief on the bank debt, but also a moral case, as the Taoiseach has acknowledged, that the European position was imposed on Ireland.

A final point I would make relates to the long-term bonds associated with the IBRC debt now held by the Central Bank. At present, the interest payments on these bonds end up coming back to the Exchequer so the arrangement is effectively costless. The Central Bank dividend of €1.7 billion to the State is now hugely significant to the public finances and is largely driven by that transaction. The pace at which the bonds being held by the Central Bank as a result of the promissory note deal are being sold is far greater than was originally agreed. This means that instead of the annual interest payment on these bonds coming back to the State via the Central Bank surplus, they are being paid to a third party. I believe a political case must be put to the ECB for considerably slowing the rate of sale, with the aim of the bonds being held to maturity. This has the potential for improving the State finances in the years ahead.

We look forward to the remainder of the debate on this Bill and to Committee Stage, and I reiterate Fianna Fáil's support for the passage of this legislation through the Oireachtas as quickly as possible.

Seán Haughey (Dublin Bay North, Fianna Fail)
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I join Deputy Michael McGrath in congratulating the Minister of State, Deputy Murphy, on his appointment. I hope he has a successful and productive term of office. For my part, I am very pleased to be appointed my party's spokesperson on European affairs. It is a challenging brief, but it is an area that I have always taken a keen interest in, having been a member of the Oireachtas Joint Committee on European Union Affairs almost for its entire duration. I think Deputy Durkan is aware of that fact. I am also a long-standing member of the Institute of International and European Affairs and European Movement Ireland. I am committed to the ideals of the European Union. It has promoted peace, stability, democracy and prosperity for many years and I do not think that should be under-estimated. The European Union is facing a number of crises at this time. In particular, I think of the migration crisis and the possibility of a Brexit and I have no doubt that we will have many debates about those issues in the coming weeks.

The Bill before us is quite technical, but it is great to have legislation finally coming before the Dáil after the many weeks of the general election and Government formation. This evening, we debate the Single Resolution Board (Loan Facility Agreement) Bill 2016. European Finance Ministers have agreed that member states participating in the Single Resolution Mechanism would develop a system by which bridge-financing in the form of national credit lines would be available as a last resort for the Single Resolution Fund in the event of a large resolution before the full size of the fund is reached. Essentially what we are doing here this evening is fulfilling the necessary requirements to advance the banking union agenda. Given the chaos European banks experienced since 2008, I am sure there is broad agreement that banking union is a good thing.

The European Finance Ministers agreed in December that this should ideally be done by 1 January 2016. It is a bit of a cliché but in this case, therefore, I really do hope that this Bill has a speedy passage through both Houses of the Oireachtas, and the Minister of State stressed the urgency of it in his contribution.

As we debate the Bill, we should also reflect on the position of Ireland's banks since the 2008-11 crisis. Ireland was one of the first states to experience potential bank collapse and it would be fair to say we felt very much isolated at the time. As we know, shareholders and junior bondholders experienced losses but, largely at the insistence of the ECB at the time, senior bondholders and uninsured depositors were relatively untouched. It should be remembered that the collapse of the banking sector in Ireland cost the Irish taxpayer €64 billion. Since then, the bank recovery and resolution direction has been agreed and is being implemented. As a result, taxpayers will no longer automatically safeguard senior bonds by big deposits made by large companies. This is a welcome development and is supported, I have no doubt, by the majority of the citizens of this State and the European Union.

Nevertheless, we need clarification from the Minister of State on the position of Ireland at this point in time. It would seem that the EU deal agreed in 2012 has not done anything for Ireland. As stated by Deputy Michael McGrath, Fianna Fáil believes strongly that we still need a deal on our bank debt. Our Government should still actively campaign for a retrospective recapitalisation of our banks. The June 2012 euro area summit statement pledges to "examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme". It is my understanding that no such examination of Ireland's situation has taken place since then. We, therefore, need a clear and unambiguous statement from the Minister for Finance as to the exact position at this stage in this regard.

As I mentioned earlier, banking union is vital if we are to avoid the mistakes of the past. I welcome the commitment to initiate efforts to foster further cross-border consolidation within the euro area. The aim should be to have large banks that are efficient and function and diversify risks on a cross-border basis within a European Single Market. The Minister of State, when concluding, might update the House on the position of the Irish financial institutions in this context.

It should be stressed that Irish banks are currently well capitalised and in good health. On this occasion, we can really believe this assurance. Therefore, it is very unlikely that this loan facility will ever be called on. I have no doubt that the legislation is in the interests of the citizens of this State, the eurozone area and the entire EU. I also note that the fund will ultimately be financed by a levy on all euro area banks, something with which I think most people would agree. I welcome the Bill. It is in the interests of the citizens of the European Union, and I wish it a speedy passage through both Houses of the Oireachtas.

Frank O'Rourke (Kildare North, Fianna Fail)
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I also join my colleagues in congratulating Deputy Eoghan Murphy in his role as a Minister of State. I wish him the very best in the time ahead. This Bill is designed to address an international obligation arising from the banking union's agenda. European Finance Ministers agreed that member states participating in the Single Resolution Mechanism should put in place a system by which bridge-financing in the form of national credit lines would be available as a last resort for the Single Resolution Fund in the event of a large resolution. Most member states have either already put this in place or are about to do so, as there was a commitment following the European Finance Ministers agreement on the approach last December that this is needed to be in place by January 2016.

It is crucial, therefore, that we progress this Bill as quickly as possible to enable Ireland to meet its banking union commitments.

The primary purpose of the Single Resolution Board (Loan Facility Agreement) Bill 2016 is to give full effect to the State's obligations under the intergovernmental agreement on the single transfer and mutualisation of contributions to the single resolution board and to enable Ireland to proceed to ratify the intergovernmental agreement, IGA. The single resolution board is part of the Single Resolution Mechanism, SRM, which also comprises the Single Supervisory Mechanism, SSM. The SRM was established to centralise resolutions responsible at EU level for large financial institutions within the euro area. Ultimately, the SRM is aimed at ensuring the orderly resolution of failing banks without resort to taxpayers' money. The Single Resolution Fund is a common bank resolution fund which supports this resolution. The board is a pan-European resolution authority responsible for managing the wind-down and restructure of failing credit institutions and, as such, managing the fund. All credit institutions, regardless of type, are required to contribute to the national compartment of the fund. The board is responsible for significant credit institutions that are directly supervised under the SSM or the European Central Bank. In Ireland's case, the banks concerned are Bank of Ireland, Allied Irish Bank, Ulster Bank and Permanent TSB. In practise, this mean that if a bank is placed in resolution there is a clear process to be followed before funds can be drawn from the loan agreement between the State and the single resolution board. A minimum of 8% of eligible liabilities must be written down in the bailing process before the Single Resolution Fund can be used. The single resolution board could find itself in a situation, particularly in the early years, whereby following completion of a bailing process there are losses that remain to be absorbed.

It is important to point out that, as my colleague stated earlier, the Irish banks are currently well capitalised and are generally in good health. Therefore, the Minister for Finance is of the view that the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national back-stop to the single resolution board is key from a confidence perspective as it provides another indication to the market that the banking union member states are serious about ensuring stability in the banking sector going forward.

This legislation will enable the State to provide to the board a bridging finance agreement. This will take the form of a national credit line of up to €1.815 billion to the Single Resolution Fund. During the initial build-up phase the fund will be composed of national compartments which were set up under the banking recovery and resolution directive and the Single Rulebook for the European credit institutions. These compartments will be subject to gradual merger over eight years so that they will cease to exist at the end of the transitional period in 2024. Compartments of the funds will be held by the participating member states which will make moneys available, as a last resort, to the board should the resolution mechanism be called upon. Responsibility for placing credit institutions into the resolution procedure lies with the board. During the eight-year transitional phase a common back-stop will be developed to facilitate borrowing by the fund and these will be ultimately reimbursed by contributions from the banking sector.

As detailed, the credit lines extended to the participating member states will ultimately be accompanied by contributions from all European credit institutions. During the recent crisis the Government and taxpayers provided support to failing banks. In the absence of an appropriate resolution to underline the importance of establishing a common EU resolution framework to address failure in a timely and orderly manner, as a resolution authority, the Central Bank will be now in a position to have an input into resolution matters, domestically and at European level, in terms of participation in the single resolution board.

Pearse Doherty (Donegal, Sinn Fein)
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Ba mhaith liom fosta comhghairdeas a dhéanamh leis an Aire Stáit, an Teachta Eoghan Murphy, tar éis dó bheith ceaptha mar Aire Stáit. Tá súil agam go n-éireoidh go maith leis, go n-éireoidh go maith linn, agus go mbeidh comhoibriú eadrainn i rith an téarma seo. Mar an gcéanna leis an Teachta Michael McGrath, chuir mé aithne ar an Aire Stáit le linn an fiosrúchán baincéireachta. Tá súil agam go mbeimid in ann an caidreamh sin a choinneáil agus muid ar thaobhanna difriúla de na binsí anseo.

I welcome the opportunity to speak on this legislation. Unlike previous speakers I do not look forward to the speedy enactment of this legislation. If anything, we should take time to consider and tease out all of what is included in banking legislation, including in this case, the loan facility agreement provided for therein and the unintended consequences or intended consequences or ramifications of different sections of that agreement. I was hit by a bout of déjà vuand was going to run for cover when I heard three Fianna Fáil speakers in a row say that our banks are well capitalised. It must be borne in mind that what we are speaking about in the context of this legislation is a €1.8 billion loan facility. We are told we will get back this money because it is unlikely we will ever have to issue the loan because our banks are so well capitalised. In other words, the banks will pay us back. We have heard all of that, or at least a version of it, before.

There have been positive changes in this area, which I welcome. However, it is key that we take our time with this legislation. I understand that in terms of this matter we are already five months delayed but let us not be in such a rush that we do not parse the small number of paragraphs in this legislation or the more complex document adjoining it, which I will deal with later. This legislation is the latest in a string of highly complex legislation in respect of implementation of the banking union. Specifically, it ratifies an agreement whereby the State can loan more than €1.8 billion to the single resolution board in the event of an Irish bank going bust. We are told this is a temporary arrangement during the period up to 2024 while the board is being mutualised. During this period, each member state has a compartment which can be called upon if one of its banks is in need and the fund is depleted. If it is called upon it is to be repaid by the board over time from contributions from the banking sector. We are told it is highly unlikely this scenario will ever arise. Nevertheless many previously highly unlikely scenarios have occurred in the past few years. I am sure if we were to travel back to this House ten years ago it would have been considered highly unlikely that we would at this time be living in a eurozone of zero inflation and zero bond rates. It would have been considered highly unlikely that AIB, Bank of Ireland and Permanent TSB would be in part or full ownership of the State, yet here we are. It is almost eight years since the bank guarantee was introduced and here we are again pledging the State's money to guarantee a failing bank if it is in trouble under certain circumstances. It is a hypothetical and, according to the Minister, a highly unlikely scenario yet we are being asked to support it formally in legislation.

It is important to consider what we are being asked to support today. Section 3 states, "Subject to the terms of the Loan Facility Agreement and the approval of the Minister, there may be paid out of the Central Fund or the growing produce of that Fund such sums, not exceeding, in aggregate, a sum of €1,815,000,000, as are required to enable the State to make, to the Single Resolution Board, payments provided for in the foregoing agreement." Where is the Oireachtas approval in all of this? The Minister of State, Deputy Eoghan Murphy, will say that the Oireachtas approval is in this legislation in respect of which Fianna Fáil is seeking a speedy passage through the House. This legislation deals with expenditure or a loan of €1.185 billion. Surely, the Minister should be required to come back to the House to seek approval for individual tranches of loans. At the stroke of a pen, without debate or a vote, we are being asked to empower a Minister, including a Minister without majority support, to hand over €1.8 billion of the people's money at some time in the future. Under section 6 the Minister is required to tell us at the end of the year how much of our money he or she has pledged in this loan.

That does not sit comfortably with me and it should not sit comfortably with anybody here. We all know from bitter experience how an initial loan can get out of control and be extended and increased. I want to examine this on Committee Stage in great detail. I accept that section 3 deals with the sum not exceeding €1.815 billion but section 2 states:

Minister may perform functions for purposes of Loan Facility Agreement

2.All such things as are necessary or expedient to be done for the purposes of the State’s performing its functions under the Loan Facility Agreement may be done by the Minister and there is conferred, by virtue of this section, on the Minister all the powers necessary in that behalf.

That is a very powerful section because we are basically empowering the Minister to do all the things the Minister needs to do to perform this function under the loan facility agreement. On page 11 however, is stated: "'Fixed Individual Amount'means on the date of entry into force of this Agreement, EUR 1,815,000,000, subject to any changes of such amount agreed in accordance with Clause 24 (Review Clause) of this Agreement." Under Clause 24 everybody can agree at European level that the numbers should be higher. We need to tease out how that sits with section 3 which puts a limit on the €1.8 billion. They are concerns I would like to see addressed on Committee Stage because under section 2 we are giving the Minister power to do whatever he needs to do, and all the powers under the sun to bring into being the agreement under the loan facility agreement, which includes on page 11 the idea that the sum of €1.8 billion can be reviewed and Clause 24 allows for a review to happen which allows for the set amount to be increased. I would be concerned that some legal loophole would be found in terms of section 3 that says section 2 allows him to do this and section 3 is not strong enough or robust enough. That is why we need to take our time to tease out these issues and consider all the consequences of different sections, not only of the primary legislation but of the loan agreement which is named and party to this legislation.

Section 4 limits the potential calls on Ireland's compartment to institutions authorised in the State but by the latest count there are 477 institutions enjoying some sort of operation in the State. Even on the list of licensed banks there are many the ordinary citizen would never have heard of on the high street or in radio advertising. I would welcome clarity on how strict this potential call really is.

The banking union was built on a promise to separate sovereign and banking debt but it is questionable whether it has achieved this task. The debate on banking union offered this State and the EU an opportunity to make sure a sovereign state would never be dragged down by a bank or system of banks again. That was the big idea but, as often happens in the EU, the lobbying began. Bigger countries flexed their muscles and suddenly the talk was about national compartments and sovereign backstops. As usual, the EU institutions did not waste the crisis and the ECB has increased its power significantly while its accountability and transparency remain minimal at best. If the banking union had achieved its aim of separating banking and sovereign debt, we would not be here today being asked to vote on a guarantee of €1.85 billion for Irish banks that might fall into trouble. There are positive elements of the banking union and I hope we will progress to the genuine separation of sovereign and banking debt but I have serious reservations. The new rules do something that should always have been the case. Bondholders now as a rule get burnt, then other steps are taken and only then is the state liable for any sort of hit. It took some people here and in the EU hierarchy time to grasp the concept that has always been obvious to my party, that the speculators must lose when their bets do not come in.

The second opportunity offered by the banking union debate and the general debate around this crisis was one unique to this State. The banking union discussions and the related European single mechanism talks offered a huge chance for this State to get some sort of justice on our debts. We are told we have a new system whereby never again will a state have to bail out a bank, or at least in a few years we will have that type of system. We are also told that a major Irish diplomatic breakthrough was achieved in this process, allowing us to apply the new rules retrospectively in order that we can get the money back that under the new rules would never have gone into these banks in the first place. All we had to do was apply but the previous Government and, sadly, this one too have set their faces to ignoring this possibility and letting the people pay this debt. When the history of these years is written, it will be said how bizarre it was that a small country that bore the brunt of the disastrous decisions chose not to use the mechanism that was set up specifically for it to apply for retrospective recapitalisation of its banks. It is unbelievable that the Government will not even make an application. Where is the bold Deputy Shane Ross who so decried the previous Government for not making such an application? Where is he banging his fists now on the table and saying that the Government needs to do the right thing by the people? Where is the new politics? I welcome that Fianna Fáil has said this should happen. Of course it should happen. It got us into this mess in the first place. Its Ministers signed the promissory note cheques. Its Government led us down this path.

Let us see if we can use this legislation to try to force the Government to make this application at long last. This was our open goal during the whole banking union process, our chance to set some things right, and the Government turned round and ran back down the pitch. The two great opportunities of banking union have gone a begging, or at least not yet been realised. We are left with some better rules that we hope will work even though they have been diluted and we are also left with a banking debt that was not the people’s debt and with banks that are still ripping us off even though we own some of them. Banking union so far has not served the Irish people as well as it could have. Nevertheless, it is a process under way and we must work to make sure it serves the interests of people and not just the interests of the banks or the ECB. It is a major step to guaranteeing that in future bondholders, not people on social welfare or hospital trolleys, get burnt.

I will scrutinise this legislation on Committee Stage and will take my time doing so. I will consider amendments to the section based on the concerns that I have raised and I will deal with them. If the majority in the House believes this minority Government should make a retroactive recapitalisation, perhaps we will enter a clause in the legislation to make that happen.

Joan Burton (Dublin West, Labour)
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I wish Deputy Eoghan Murphy all the best in his very important new job.

This is in a certain sense a technical Bill to give effect to the framework and structures of the European bank recapitalisation arrangements. It has been a very slow process. In respect of what the previous speaker said about the European Union and its response to the banking crisis, it was very disappointing. I have said that before. The EU’s initial response to the financial crisis was too slow, dictated from the centre and ideologically blinkered in approach.

As a Minister, from 2011, I repeatedly argued, together with my colleagues in the Labour Party, that the EU needed to shift from austerity towards a policy based on investment growth and job creation, with full employment as the central target, and to have a significant capital investment programme. In a certain sense, the flaw in the Bill is what is not present in terms of a comprehensive response to the financial crisis by the European Union. The response is very technical and narrow and is focused on the banking sector. As the Minister of State said, the Bill is technical in nature.

I will focus on Ireland rather than other countries. I refer to Professor John FitzGerald and a recent ESRI study. It found that during the economic crisis the main features of the Irish welfare system were preserved and welfare spending was largely protected from the huge reining in of public spending. Professor FitzGerald said a limited cut in nominal rates for most payments, which took place during the term of the Fianna Fáil Government, was offset by a fall in prices, leading to a small increase in the purchasing power of benefits. As Minister, I ensured that pensioners were largely exempt from the cuts, and as a result the real value of the State pension increased when incomes were generally falling.

Ireland's market incomes, as we know, are very unevenly distributed and the tax system and welfare system, in particular, play a very important role in redirecting income. The welfare system protected us from a potential growth in inequality during the economic crisis. ESRI studies found that after tax and welfare, there was no change in income inequality between 2007 and 2014. We would have liked if income inequality could have been reduced further. I see Members in the Chamber who rushed over to be supporters of a particular Greek model which toyed with default. As the appreciation of what a default actually meant for ordinary people and businesses in a country developed, they drew back from that. The EU could have dealt with Greece and a number of other countries in a much better way.

The other remarkable feature of the Irish history of the collapse of the banking system is that there were no forced redundancies in the public service. Many people took early retirement on an agreed basis and left the service, which diminished resources in a number of areas. Some Deputies have professed long and intense admiration here and in other Chambers for other approaches but were unfortunately not able to succeed in achieving them, although I am sure that was their aim.

The problem with the structures the EU has put in place regarding banking is that while it has addressed banking structures, the ECB does not have a remit for critical areas for the well-being of European societies, such as a policy on full employment or young people obtaining employment, apprenticeships and traineeships. I refer to those countries which are still experiencing both little or no economic growth and major unemployment. In 2011 when the Labour Party went into government, unemployment was over 15%, and when it left office, it had fallen to 7.8%. Youth unemployment had more than halved, although it is still too high.

When it was in government, the Labour Party had a single-minded focus on getting people back to work. Recent figures show that the number of people in schemes has fallen substantially because young people coming out of college are getting jobs and recruiters are back in all the colleges and universities. We have also restarted apprenticeships. Much more needs to be done to get more young people the apprenticeships and training that will help them to get good, well-paid employment and careers.

I am disappointed with the Bill in terms of the EU structures involved. The Minister of State is simply presenting this element of the EU structure. I do not believe a strong enough case has been made for the structures to be accompanied by policies around investment, capital investment and full employment.

The debate on Brexit is taking place in the North and our neighbouring island. There are probably people in the Chamber who favour Brexit. However, the context of Brexit should be remembered. We need to understand why people feel alienated from European institutions which have brought an end to war on the Continent and were constructed in the context of the horrendous Second World War. As a result of the failure of the EU to focus on investment and full employment, it no longer commands the kind of political support which it was able to ten, 15 or 20 years ago across Europe. There is an intense debate in Britain about whether to leave or remain. Other countries in Europe are now engaging in that type of debate.

When we approach structural legislation, we have to do so in the context of considering how it addresses the serious problems that befell people throughout Europe as a consequence of the events of 2008 and subsequent years. As I said, I was appalled by the lack of an investment and growth programme from the EU. I still think the Juncker proposals are not of significant benefit to Ireland because we do not have the kind of large-scale private companies that could carry the type of investment they propose. What is missing is a vehicle from which to have investment in public projects.

A number of very large public projects are now required in Ireland, and there have been many discussions in the Chamber on the subject. The programme for Government refers to investment in broadband as a way of developing more small and medium businesses in Ireland. The area which requires rapid investment and the scaling-up of investment is housing and the construction of homes and apartments.

The Minister of State said the banks in Ireland are doing very well. I understand the phrase he used in his speech was that the banks are "well capitalised". A well-capitalised bank may not be a bank that is functioning well if it is not lending in an accessible way for the construction of homes, as is required by our society.

We have a significant expansion in the population. We have a flow of returning emigrants and inward migration, which is being utilised in our expanding economy, but because the banks are not functioning, particularly for medium-sized developers and builders, we are not getting anything like the housing construction we require.

I do not agree with the Minister of State's comment in the context of housing, "It is important to point out that our banks are currently well capitalised [that is true] and in general good health." However, a bank that is not able to lend to developers for a vital economic and social need such as housing on a small and medium scale is not contributing what it should to a functioning economy. I say to the Department of Finance that the statement to which I referred is not adequate because if a developer intends to build a block of apartments in the city centre, he must have all the capital lined up and in place to build all of the apartments. One cannot, for example, get funding for the first five of a total of 40 apartments and then go back and look for the funding for the next five. All the funding must be in place at the start.

It is easier to get funding for individual house building, for which there is considerable demand, in particular in suburban Dublin and in the suburbs of other cities. People want a family home in which they can raise their children. However, there is again a problem with banks in terms of financing builders and developers, in particular medium-sized and larger developers. NAMA has been funding some developers but the banks in general are not doing so as yet. We still do not have the kind of flow of development from the strategic investment fund that ought to be in place by now. I understand a review of the fund is under way but it is not producing the strategic flow of capital to build the houses and apartments we need in this country.

Let us be clear that the purpose of banks is to mind people’s deposits and to lend that money. We know that banks are very shy of lending. According to the most recent statistics, development and building, which should account for approximately 10% of economic activity in this country, is down to approximately 6% net. That is grossly inadequate. One cannot really commend the banks when they are not doing what they are meant to do in a normal economy, which is to aid the flow of money around the economy.

The Single Resolution Fund is a technical mechanism to ensure bank collapses do not happen again, but bank collapse is not just a function of technical regulation. It is a function of a functioning economy where people have jobs and they are not afraid to spend. If there is large unemployment, as applies in a number of European Union countries – thankfully Ireland is moving away from that – people then become afraid to spend and, accordingly, one builds up a problem whereby activity in the economy is way below what the levels need to be. There have been right-wing ideological views in Europe to the effect that this is the way the structures ought to be, but to some extent that is standing economics on its head. One needs activity and people at work and then one is a position to provide the social goods and capital investments such as houses that people need. The banks are a key element in facilitating that. The banks are not in rude health if that is not happening. When the Minister of State responds at the end of the debate, I ask him to comment on that point. The issue does not feature directly in the Bill before the House but it is crucial to the future of Europe and the economic future of this State in order that we can reduce unemployment further and get a job with good pay and conditions for everybody in this country who wants a job. Given that as a country we have been investing a great deal in education, we have tremendous potential for sustainable economic growth with improvements in capital investment if we use the banking system properly.

The regulation of the European banking structures has taken a very long time. Much of the process was decided in 2012 and 2013 and the long gestation period of the Bill is one measure of how slow Europe has been, over a period when we experienced some of the worst crises seen in post-war Europe. There was no feeling of urgency in dealing with the consequences of the banking crisis, which has been experienced in many countries, including high levels of unemployment in Spain, Italy, France, Greece and Portugal to a lesser extent. There are high levels of unemployment among young graduates, young people and workers in general. That is not a sign of a functioning European Union. While the Bill is part of the mechanism of resolving and ameliorating future crises, it does not sufficiently address the after-effects. I do not know whether the Minister has any counterpart proposals to accompany the legislation that would ensure the kind of investment and policy orientated to full employment and major infrastructural development, including the kind of development we need as a country in terms of climate change.

In the context of the discussion in the United Kingdom on Brexit, does the Government have a view on an investment and employment programme? The UK has very significant employment creation figures at the moment, but the terms and conditions of work in many areas of employment have worsened. Notwithstanding the difficulties we have been through, thanks to the Labour Party being in government, we are the only country that has improved collective bargaining for workers during the recent incredibly difficult period in our financial history. I look forward to hearing the Minister’s reply in due course.

Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I wish to share time with Deputy Bríd Smith. I will speak until 7 p.m. and then Deputy Bríd Smith will take the remainder tomorrow if that is okay.

Robert Troy (Longford-Westmeath, Fianna Fail)
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Is that agreed? Agreed.

Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Let us start with the very grand declaration on banking union by European Single Market Commissioner, Michel Barnier. He said it was "a momentous day for banking union" and "a memorable day for Europe's financial sector". I would say that was the case. He also said he was "introducing revolutionary changes to Europe's financial sector ... so that taxpayers no longer foot the bill when banks make mistakes ... ending the era of massive bailouts". That was the way banking union was announced.

It is a strange way to go about ending the era of massive bailouts when Members have legislation before them that is about facilitating the transfer of at least €1.815 billion of public money from Ireland to a fund for bank bailouts. Obviously, Members are told we will get the money back and are sort of promised this amount of money will not increase. However, it perhaps illustrates that the banking union is not all it is cracked up to be.

On some level, one must be impressed by how the banks have managed to turn this crisis. When the crisis emerged, people clearly identified the big banks in particular as a key part of the problem. There were demands to break up the big banks, to separate out different functions of banking and, in particular, to end the process of bank bailouts. Through a process of lobbying, and European banks have more than 1,000 lobbyists in Brussels and spend €120 million per year on lobbying, they have managed to transform that narrative, having been helped significantly by the fact the European Commission is in their favour and the European Central Bank acts in their interests. They have managed to transform completely the process for banking union into a process that is driving the further liberalisation of banking across Europe in the interests of achieving a single market in banking. Effectively, it establishes a union in the interests of the banks, written partly by the big banks themselves. It transfers even more power to the European Central Bank as the regulator of the banks, which is somewhat like putting the fox in charge of chickens. Moreover, it does little to stop the possibility of further bank bailouts, paid for by public money. For all these reasons, the Anti-Austerity Alliance opposes this legislation. It will propose amendments on Committee Stage but will oppose it on Second Stage.

To start with the details, an important question has been raised about the amount being discussed in this Bill. While it refers to an amount of €1.815 billion, it then states this is subject to any changes made in accordance with Clause 24, the review clause, which clearly appears to suggest that figure can be increased. I will be interested in the response of the Minister of State to this point. The other point I wish to make in opening is that Members should remember where this came from. The origins of this Bill can be dated back to that infamous summit of June 2012 at which two clear commitments were made. The first was that it was imperative to break the vicious circle between banks and sovereigns, with which this Bill is meant to be dealing. The other commitment made was "to examine the situation of the Irish financial sector with a view to further enhancing the sustainability of the well-performing adjustment programme". That, translated into the language of Irish politics through the mouths of the Taoiseach, Deputy Enda Kenny, and Eamon Gilmore, became a game-changer, a seismic shift and a promise that retrospective recapitalisation of the Irish banks could and would take place and that we would get back some of the 42% of the total cost of the crisis to the European banking system that we took on. Moreover, the media in general bought it with very few exceptions. Not only has this not happened and will not happen, the Government even tried to state this somehow is a success and to claim it is a victory that Ireland is not obliged to seek that money back, that massive bank bailout for which people in this country are still paying.

As for banking union itself, a key point is that it will not work. It does not break up or do anything to break up the big banks. While the big banks are covered by the fund, all the small banks, which encompass a quite significant portion of the European banking sector, are not. Most significantly, the fund simply is not big enough. A very good article by Wolfgang Munchau was published in the Financial Times a couple of years ago. While some of the details have changed since, it essentially gets to the point, which is that the aggregate balance of the European financial sector, excluding the central banks, is more than €33 trillion. He wrote:

The bank resolution fund for this new banking union will be built up over 10 years [that is now eight years] ... At the end of that period it will have reached €55bn – a mere 0.2 per cent of the asset base. Most of these banks have assets of more than €30bn. In a systemic crisis, in which banks can suddenly collapse, the whole European resolution fund could easily be swallowed by a single moderately sized bank.

In those circumstances, it then fundamentally will be back onto member states and public money through the European Stability Mechanism. Consequently, bailouts have not gone away. The scale of a possible banking crisis, particularly if one considers events in China and so on as well as the weaknesses of the European banking system, means we could be back to the question of bank bailouts.

My second point pertains to the undemocratic way in which this has happened. The model of the intergovernmental agreement is a bad precedent to set. It means evading the limited checks that exist, for example, through the European Parliament such that the manner in which this is being processed is extremely undemocratic even by European Union standards. Most important, however, this gives even more power to what arguably is the most powerful undemocratic and unelected institution in the entire world, which is the European Central Bank. The European Central Bank is being put in place as the regulator of the banks in the knowledge that this is the same institution that in 2011 intervened actively to remove elected governments - whatever one might think about them - in Greece and Italy and to replace them with governments pretty much explicitly of bankers for bankers with a mandate to deliver for the banks and to deliver the maximum amount of money back to the banks. This is the institution that has been put in charge of regulating the financial system, which is extremely problematic.

Another point I will make is this plays a useful role from the perspective of the banks of shaping a narrative about the crisis that longer is about the banks or about the nature of the banking system. Instead, it becomes a technical question about supervision and who supervises them. It does not deal with any of the fundamental problems and the point is that if one wishes to avoid massive banking crises in the future and the implication of significant bailouts of public money, one then must break up the big banks. For example, it is estimated that Deutsche Bank is made up of approximately 2,000 entities and on the scale of some of the massive megabanks in the United States. There are other megabanks within Europe that are immensely politically and economically powerful and they must be broken up.

In addition, fundamentally we need a different sort of banking system. It has been exposed clearly in recent years that societies have been run in the interests of profit maximisation of the banks. This fundamentally is a problem and it is necessary to rethink and reimagine what banks are for. Banks must be in public ownership and must be run as democratic public utilities to provide for society, that is, to facilitate society and the economy as a whole in respect of ordinary people having jobs, creating wealth and getting access to credit. While that is what banks should be, unfortunately it is the opposite of what banks are at present, namely, functioning as a parasite on the economy as a whole and on society at large. Unfortunately, the banking union and this Bill, which entails Ireland giving €1.8 billion, does nothing to resolve the situation regarding the banking system. It enables the banks to pretend that something significant has happened. It has not and the situation continues as it has been. The European Union functions in the interests of the banking system, unfortunately, and there are no proposals here fundamentally to change this. Public money will still be used to bail out private banks with the European Central Bank having been further empowered.